Massachusetts’s Governor Baker signed An Act Regulating and Insuring Short-Term Rentals on December 28, 2018. The act regulates short-term rentals provided through services like Airbnb. The governor rejected an earlier version of the bill, and returned amendments primarily allowing for an exemption for owners who rent out their property for two weeks or less per year, and reducing the amount of information provided publicly about rentals owners. The bill was motivated by concerns that the rise in short-term rentals drives up housing costs and pushing out long-term residents. The statewide bill comes after both Boston and Cambridge individually passed laws essentially having the same effects. However, the Boston law was challenged by Airbnb, who filed suit in federal court claiming that the regulations are “Orwellian” and violate several laws, including laws that protect online companies from being held liable for the actions of their users. The city of Boston is currently holding off on some of the regulations passed pending the resolution of the court case. Airbnb had not yet said if it will challenge the new Massachusetts law.
The statewide law has two main components: first, that all short-term rentals are taxed by the Commonwealth, and can be additionally taxed by local governments, and second, that all owners of short-term rental properties must register with the state and hold insurance. The registration requirement was a cause of debate. Lawmakers, including Governor Baker, were concerned about violating the privacy of owners by publishing their names and addresses publically. In the amendments to the July bill that Governor Baker rejected, the registration requirement was changed so that only the owner’s neighborhood and street name would be published, not their exact address. The law also dictates eligibility in order to register. To be eligible to be a short-term housing unit, the space must be compliant with housing code, be owner-occupied and be classified for residential use, among other requirements. Another cause of debate was an exemption for occasional renters. Governor Baker originally wanted owners who rent their properties for 150 days or less to be exempt from the regulations. However, in the final version of the bill, the exemption was decreased to 14 days.
Not surprisingly, the hotel industry supports the bill. Paul Sacco, the President and CEO of Massachusetts Lodging Association, said:
“This is a tremendous victory for municipal leaders and the people of Massachusetts who have been waiting for years while Airbnb rentals have exploded, resulting in skyrocketing housing costs and disruptions in local neighborhoods. By adopting a more level playing field between short-term rentals and traditional lodgers, lawmakers made great strides toward a more fair and sensible system.”
Airbnb had a far less enthusiastic response however. In citing concerns about the property owners who use Airbnb to earn extra income, Airbnb said that they would “continue the fight to protect our community and the economic engine of short-term rentals for hosts, guests, and local small businesses”
While Massachusetts is the first state to pass a law, many other cities have passed similar laws in the recent years. In Nashville, the city passed a law in January which focused on taxing short-term rentals that are not owner-occupied in order to fund affordable housing development in the city. The “linkage fee” tax is controversial, with lawmakers questioning if the fees generated are enough to actually impact the lack of low-income housing within the city. Seattle passed a similar tax law in November 2017. The legislation aims to encourage owners who rent out a spare bedroom and discourage investors who buy entire buildings for use as short-term rentals. Finally, New York City passed regulations in July 2018 which requires Airbnb, and other similar companies, to provide information about the properties listed for rental within the city. However, Airbnb sued in federal court claiming that the requirement to provide information to the city violated the company’s fourth amendment right against search and seizure. The law was set to take effect in February 2019, however the Judge granted a preliminary injunction in favor of Airbnb saying, “The city has not cited any decision suggesting that the government appropriation of private business records on such a scale, unsupported by individualized suspicion or any tailored justification, qualifies as a reasonable search and seizure.”
Few issues in recent years have bedeviled lawmakers at the state and local level as much as the question of how to react to the online “sharing” economy, where people with a car they don’t use much or a typically empty spare bedroom decide to monetize their asset. When voters in Austin, Texas decided to require Uber and Lyft drivers to submit to mandatory fingerprint background checks, those two companies simply closed down their operations in the city. The overall picture for ridesharing and homesharing laws is, to be blunt, a mess. For the time being, flying under the radar would seem the safest course for the industry, since most jurisdictions still don’t regulate them at all.
These crosscurrents make the homesharing site Airbnb’s decision to approach the city of Washington, DC and offer to collect and remit taxes all the more curious. Even more interesting is that the District hasn’t bothered as yet to amend its laws regarding transient accommodations, meaning the entire industry continues to operate in a legal grey area in the city. Is this actually the company striving to be a good corporate citizen, as they claim? Is this a savvy move on the company’s part to insulate itself within regulatory opening? Or is it nothing more than regularized bribe for the city not to focus regulatory scrutiny on the company’s operations?
As much as one might think Airbnb’s decision to pay taxes was a tax issue, the tax laws turn out to be something of a red herring. The District of Columbia’s official code imposes a 4.45% excise tax on all temporary lodging, defining that term as “any hotel, inn, tourist camp, tourist cabin, or any other place in which rooms, lodgings, or accommodations are regularly furnished to transients.” Plainly if Airbnb fits anywhere in this statute, it falls under the “any other place” catchall.
Although Airbnb itself directs potential hosts to the taxing provisions, the more interesting questions here arise on the regulatory side, or, more precisely, the zoning side. Washington’s official code delegates detailed zoning regulations to a special Zoning Commission, charged with regulating a plethora of facets of the cityscape. The Zoning Commission in turn prescribes regulations for the permissible use land in the city. Use of a property as a Hotel, Inn or Motel, Bed and Breakfast, Boarding House, or Rooming House each triggers separate requirements. For example, a Hotel license requires just three rooms, but no parking spaces, while an Inn or Motel license requires 30 rooms with the availability of a parking space for each. Boarding House licenses and Rooming House licenses require the holder to offer at least five rooms in addition to meals, while a Bed and Breakfast license, while not having a minimum number of available rooms, apply to “guesthouses, housekeeping cabins and cottages, tourist homes and youth hostels.” Ultimately, none of these licenses seem appropriate for an Airbnb host since all of them require the applicant to register as either corporation or some other form of business and comply with a variety of city sanitary and fire codes.
Instead, potential hosts need a Home Occupation Permit, which allows the holder to conduct limited business or professional activities from a residentially zoned structure. Residential use regulations set out in detail what a Home Occupation Permit holder may and may not do on the premises. Even a cursory reading of these regulations reveals how their drafters intended them to apply: to (very) small-businesses or self-employed persons who operated their income producing activities from a small portion of their home or apartment.
One rule (11-203.4(b)) provides that only 25% of the premises may be used for the owner occupation; how is an Airbnb host supposed to enforce that? Draw lines on the floor or his or her apartment indicating the 25% of floor space a guest can use? Another subset of rules (11-203.6) limits the number and nature of retail sales on the property, while yet another (11-203.5) proscribes most types of outdoor signage. Section 11-203.8 of the regulations seems to offer some relief to potential hosts by providing that the owner may operate a Bed and Breakfast facility (and very kindly providing a dispensation from the floor area limitations mentioned earlier). Unfortunately, this exception does not apply to residences in a “multiple dwelling” (i.e. apartment buildings) and, more importantly, requires the owner to obtain a Bed and Breakfast license.
As things stand there appear to be three legal categories would-be hosts fall into. First, hosts who live in the place they’re renting and have fewer than two guests at a time must get a Home Occupation Permit and a Bed and Breakfast license. Second, hosts who live in the place they’re renting and have three or more guests at a time need special approval from the Zoning Commission and a Rooming or Boarding House license. Third, hosts who don’t live in the place they’re renting need a use variance from the city. The chart below lays out these categories. Hosts also need to remember that city laws don’t do anything to address separate apartment or condominium building rules.
Even the Washington, DC Department of Consumer and Regulatory Affairs (DCRA) admits this legal structure needs updating to reflect current practice. “The process was developed before the advent of services like Airbnb, so some updating to account for emerging business models may be warranted,” a DCRA spokesman conceded.
Given this regulatory patchwork, it seems clear that shoehorning the digital marketplace in transient accommodations into existing law is, at best, a half-hearted solution. Many hosts undoubtedly violate this legal framework, either deliberately or from sheer ignorance. With Airbnb paying taxes to the city, however, it seems unlikely that DC will crack down on violators. Condo boards and building management may be the only people properly incentivized to enforce the current law. And as our history repeatedly teaches us, any legal regime which turns large groups of citizens into scofflaws invites people to treat the rest of the laws with that much less respect.